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Are you saving enough for retirement?

It also seems to indicate that roughly 8% is a safe withdrawal rate, at least for men who choose to retire at the standard retirement age in the USA … we’ll explore this further, through a series of posts beginning later on this week.

For now, what do you think is a ‘safe’ % of your Number to live off each year?

7 thoughts on “Are you saving enough for retirement?”

At the risk of going out on a limb, I’d like to say that, in the context of what this blog is advocating, I think the question is meaningless. If you can get your ROI high enough to make your number in relatively short period of time, you should be (i) “retiring” for a very long period of time which makes any draw down of principal a very dangerous proposition and (ii) should be aiming to produce a post retirement ROI sufficient to meet your needs and have enough left over to combat inflation.

Put differently, if a 3% SWR was good enough to cover me for 50 years with sufficient certainty I would have retired years ago.

>roughly 8% is a safe withdrawal rate, at >least for men who choose to retire at the >standard retirement age in the USA

I don’t know what fantasy land they are living in because all the estimates I’ve ever seen give a maximum of 4% to last at least 30 years! Traineeinvestor brings up a good point- if you retire earlier you need to take a smaller % to insure you don’t outlive your money.

Maybe he is only expecting to live another 20 years after retirement I guess that would make sense if his budget includes for a couple of packs of cigarettes a day for a chain smoker!

AJ – I think folks are really not understanding what draw-down rate means (=budgeted, required yield, not necessarily depletion rate). Maybe you can use your 1st post to define the vocabulary and bring everyone onto the same level.

As mentioned, my view (for what its worth) is that unless you are looking at a very limited time period, a safe withdrawl rate is a meaningless concept. I’d rather look at the ROI required to at least maintain my wealth in real (inflation adjusted) terms.

An 8-10% annual ROI = ~3-4% left in the portfolio to allow it to grow along with inflation, so that your portfolio has the same ‘value’ to you in 30 years as it does today. In other words, it ‘grows along with inflation’.

~1% or so to go toward trading/brokerage fees, provided you’ve done your due diligence and are not getting ripped off.

Effectively leaving ~3-5% that you can draw as ‘annual income’ and live your life’s purpose off of.

But an even better ‘retirement use’ of this porfolio is to use it to purchase several really good real estate investments, via commercial properties to lease or good residential properties to lease and live your life’s purpose off of the eggs that those Golden Geese provide.

It’s long been a rule of thumb among trusts and foundations that you can spend about 5% of your capital each year, and still be able to expect to grow your capital over time.

The reason this doesn’t work for individuals is that it supposes that you can cut your spending sharply in years that your capital has fallen sharply. (If the market is down 40%, you need to spend 40% less than you spent last year.) It’s a rare household whose financial structure supports that kind of flexibility.

So that’s where the 4% rule comes from: It’s the 5% rule with a bit of slack to cover down years in the market, and to allow for a bit of inflation adjustment in years when the investment return doesn’t quite cover inflation.